(Washington)

Conservatives and investors, consider yourselves notified: Bernie Sanders could very well be the next president. Bernie is jumping in the Democratic race and now looks like the frontrunner after what looked like a failing campaign just a few months ago. Bloomberg is draining votes from Biden, which is helping Bernie. He is looking very good in the first three big contests of the Democratic primary, and it looks more likely than not that he will win the bid. He had a huge fundraising round in Q4, leading the democratic field. What made his dominance in fundraising so impressive was not just the size relative to the crowded race, but the fact that his average donation was only $20, showing the scale and intensity of his support.

FINSUM: We still think Bernie would falter against Trump in the main race, but his odds for getting the bid are improving.

(New York)

The election may still be ten months away, but the whole year is likely to be framed by it, markets being no exception. With that in mind, Morgan Stanley has some advice for investors. The first thought they offer is that in this case, being reactive is probably better than being proactive. If you reflect on 2016, everyone thought that a Trump victory would hurt stocks. The exact opposite happened. In this case, don’t assume a Democrat victory would be bad. Accordingly, it may be wise to wait until the election and then allocate as seems fit at that time. The other thing to bear in mind is that a Democratic sweep could be surprisingly good for stocks. According to Morgan Stanley, ““We would expect that a Democratic sweep in 2020 could deliver the greatest impulse to the economy” because of its greater odds of bringing a fiscal stimulus than when the government is divided between parties.

FINSUM: We really like this line of reasoning from MS.

(New York)

Investors are currently afraid of the turmoil in the Middle East. The US killing of Iran’s military leader has greatly stoked tensions, and markets are worried about a war breaking out in the Middle East. Since there have been many geopolitical issues in the region in recent history, there are a lot of examples of how markets have reacted. Suntrust bank analysts summarize how the market usually reacts, saying “While it is not unusual to see short-term weakness, these geopolitical events tend to have a transitory market impact … For example, when looking at a sample of geopolitical/military events, the S&P 500 was higher 12 months later in nine of the 12 events we reviewed. The three instances where stocks were down a year later coincided with a recession”.

FINSUM: If a full on war does not happen, we expect the effects will be transitory. The other non-military issue that could cause a problem is a big supply shortage in oil.

(New York)

In a move that seems highly in contrast to its nature (or at least its “old” nature), Goldman Sachs is changing the way it reports its earnings as part of an effort to be more transparent. The bank is not doing this because of some general high-mindedness, but rather so that investors can better grasp the progress it is making in its various divisions, including in consumer finance. That area includes its new consumer savings and online lending unit—Marcus—as well as its new credit card venture with Apple.

FINSUM: This seems like a smart play and we could see this as a catalyst for Goldman to break out of its long-term stock stagnation.

(New York)

All the worries about the economy seem so 2019 now, right? Wrong. A big new warning sign just came out of that all important sector that we love to worry about—manufacturing. New data shows the US manufacturing sector is in its worst shape since 2009, according to the ISM. The sector only accounts for 10% of the economy, but it has been suffering mightily as Trump has ratcheted up the trade war.

FINSUM: So the question is whether this weakness is just because of the trade war or whether it signals something more broad. We think it is primarily trade-driven. As a consolation, garbage stocks have usually done very well when manufacturing is weak, according to Barron’s.

(Seattle)

Yes, Amazon looks expensive and has seen massive gains in recent years. This makes many fearful of the stock. But the reality is that the stock is a free cash flow rocket ship that is going to keep surging higher, according to 47 of the 49 Wall Street analysts who cover it. Amazon trades for 69x 2020 earnings, but it still looks pretty inexpensive on a free cash flow basis. The company’s past growth initiatives are now paying off, which means Amazon is throwing off free cash flow in a big way.

FINSUM: Amazon has averaged a 35% gain per year since it went public. We don’t see any big reasons why it cannot continue this year.

(New York)

There have been two huge beneficiaries of the increased tensions with Iran in recent days: oil and gold. The shiny metal is now at its highest level since 2013 at almost $1,600 per ounce. The difference between the two is that gold seems likelier to stay elevated. Goldman Sachs argues oil would actually need a physical disruption to supply in order to stay elevated, while historically gold is likely to keep rising. According to the bank, “In contrast, history shows that under most outcomes gold will probably rally to well beyond current levels”, says Goldman’s head of commodities research.

FINSUM: Gold certainly has a longer runway than oil for staying high as its rise in prices has nothing to do with a possible supply disruption, which means one doesn’t need to materialize in order for prices to keep moving higher.

(Los Angeles)

Regulators might be about to really shake up the all important annuities market. The National Association of Insurance Commissioners, which is comprised of state level regulators, has just proposed a new suitability standard for annuities transactions. The new rule would require insurance brokers to act in the best interest of clients when recommending products. The specific wording used says that the insurance salesperson must act “without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest” and that they must “without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest”. Speaking about the rule, the NAIC says “It’s in harmony with what the SEC did but goes a little further in providing clarity as to what the conduct standard actually is”.

FINSUM: The annuities market has had some bad behavior so a clean up to give peace of mind to all involved is warranted, but this will likely mean big changes if it comes to pass.

New York)

Yesterday we ran a piece explaining the level of AUM advisors need to successfully breakaway (cheat sheet: $50m-$100m). Today, we wanted to hit on another key topic: what percentage of clients typically come with an advisor when they break away? Now, this obviously varies a great deal based on particular circumstances, but according to Kestra, the typical rate is 80% in their experience.

FINSUM: This is useful, but only to a point because many advisors will have a great deal of their assets concentrated in a small group of clients, meaning it is a fairly tight number of make or break accounts.

(New York)

The market and investors are in an odd juxtaposition. For the most part, the media and analysts remain pretty bearish, yet the market continues to rise. Fears of an economic slowdown are persistent. With all this in mind, what is the best way to play the market? Barron’s says you should sell puts, cashing in on investors’ fears and desire to buy puts. For instance, one could sell puts on the Financial Select SPDR (XLF), which is at a high water mark but is still quite vulnerable to a downturn because of fears over the economy and rates.

FINSUM: Granted, this is a nickel and dime strategy but it sure beats fearful money sitting in a money market account not earning much.